Each day’s business headlines remind us of the growing clout of developing countries, especially the so-called BRIC grouping of Brazil, Russia, India and China. As those countries press for more influence on world affairs, they need to take their own press clippings a little less seriously.
Last week’s G-8 summit in L’Aquila, Italy, brought the latest set of demands from these new economic tigers, albeit with a slightly shuffled lineup. Thanks to an accident of post-Cold War history, Russia is a member of the G-8, whose other seven members — Japan, Britain, France, Germany, Italy, Canada and the United States — all are highly developed industrial democracies. Russia more accurately belonged on the other side of the table, where the newly dubbed G-5 of China, India, Brazil, Mexico and South Africa presented the position of the developing nations.
The developing countries want to reduce the U.S. dollar’s dominant role in world trade — an issue that is particularly important to China, whose foreign exchange reserves have reached $2 trillion, half of that in U.S. Treasury debt. They seek more equal representation on important world bodies including the World Bank, the International Monetary Fund and the United Nations Security Council.
They also want the developed nations to maintain substantial levels of development aid to less-developed countries, and they balked at complying with the G-8’s call for a 50% reduction in climate-change related emissions by 2050.
With a list like that, one would think that the global balance of economic power had shifted decisively. But it has not.
Together, the five countries that presented these demands have a population of about 3 billion people, roughly half the planet’s total. They have a combined economic output of $7 trillion per year.
The G-8 has a total population of less than 900 million, not quite one-third that of the G-5. Yet its combined economic output is nearly five times greater, at $32 trillion per year. In other words, per inhabitant, economic output in the G-8 is 15 times that of the G-5.
The economic gap is narrowing, but it is still wide.
The IMF predicts a 4.7% expansion next year for emerging economies, compared to only 0.6% for advanced economies. Brazil and China reportedly have agreed on a deal to use their own currencies to settle bilateral trade deals, bypassing the dollar. And Russia, despite its seat on the G-8 side of the table, has been one of the loudest advocates for a multinational replacement for the greenback as the world’s anchor currency.
Each of these new economic powerhouses has major problems, however. All are afflicted with internal corruption, somewhat less serious in South Africa than in the others. Russia and China are authoritarian societies with unreliable courts and restive minorities on their territorial perimeters. India has a stifling bureaucracy, immense poverty and historic antipathy to free enterprise. Mexico and South Africa have horrific crime problems, as do Brazil’s big cities. Brazil and Russia are highly dependent on resource industries that are vulnerable to changing commodity prices.
In short, none of these countries remotely approaches the political and economic stability of the developed nations, and none is in a position to help shoulder the burdens they ask the developed world to bear. It is likely, as a result, to be a long and slow march toward economic and political parity.
As British Prime Minister Gordon Brown put it, “Look, to talk about the long-term future of the world economy and the arrangements that are necessary is obviously something that the whole world has got to do but...I don't want to give the impression that there is some major change about to happen around the corner.” White House press secretary Robert Gibbs echoed that sentiment, telling reporters, “Everybody understands this is going to take some time.”
The young economic tigers can make a lot of noise, but the old lions still have by far the loudest roar.